The Conservative manifesto included a pledge to review and reform Entrepreneurs’ Relief (page 34). This relief incentivises entrepreneurs to build their businesses as it allows them to pay a reduced capital gains tax of 10% on sale rather than the full rate of 20%.
Commentators are speculating that the relief may be reduced, or the qualification rules tightened with any changes coming into force as early as the next Budget. Although the Chancellor has not yet confirmed the exact date of the Budget, it is widely expected to be in February.
Craig Simpson, Tax partner at Bates Weston comments:
“The Entrepreneurs’ Relief rules have had a growth spurt over recent years. With a generous £10m lifetime limit and the ability for husband and wife to access up to £20m of capital gains at 10% it is perhaps not surprising that attention has returned to the abolition of the relief.
Whatever your political views in a post Brexit world it is essential to drive entrepreneurial activity in the UK. We should be championing the benefits of setting up your own business. Low corporation tax rates combined with low capital gains tax rates for trading companies provide a balance to individuals who take a risk in starting up business and often go on to provide considerable employment. An attractive tax rate on exit is arguably a just reward for the risk that many take. Often this is forgotten when the headlines hit the press. Even without Entrepreneurs’ Relief a rate of 20% is perhaps not excessive. But there does need to be a distinction between gains made through risky trading activity and other passive capital gains.
The relief itself needs to be much more straightforward. Rather than abolish the relief, reform and simplification are required. The current rules on associated disposals are complex. It is hard to understand the policy intention behind the rules on trust holdings. Focus should be on individuals selling trading businesses (shares or interest in a business) which they have grown and are now able to sell. If other planning, such as Inheritance tax or holding assets outside of the business are the main objective then the trade off might be to lose Entrepreneurs’ Relief on those holdings.
An attractive tax relief for Entrepreneurs’ is essential to this exciting growing SME sector and it would be a great shame to see it taken away.”
It is imperative that high level tax planning advice is taken as a first step when considering the possible sale of a business, particularly in family owned and managed businesses. The area is complex and the advice varied, dependent upon your individual circumstances and longer term goals. Bates Weston specialises in helping owner managers develop tax efficient solutions. Get in touch, without obligation, if you would like to discuss the plans you have for your business.
